FISERV, INC. and Subsidiaries
Consolidated statements of operations
Year ended December 31, 1995 1994 1993
REVENUES $703,380,000 $579,839,000 $467,863,000
------------ ------------ ------------
COST OF REVENUES:
Salaries, commissions and payroll
related costs 330,845,000 281,651,000 223,271,000
Data processing expenses, rentals and
telecommunication costs 95,798,000 81,320,000 72,524,000
Other operating expenses 125,498,000 109,975,000 90,162,000
Depreciation and amortization of
property and equipment 38,480,000 31,350,000 22,450,000
Purchased incomplete software
technology Note 2 172,970,000
Amortization of intangible assets 25,880,000 10,846,000 9,098,000
Capitalization of internally generated
computer software-net (6,382,000) (9,599,000) (7,185,000)
------------ ------------ ------------
Total 783,089,000 505,543,000 410,320,000
------------ ------------ ------------
OPERATING INCOME (LOSS) (79,709,000) 74,296,000 57,543,000
Interest expense - net 18,822,000 6,951,000 4,366,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (98,531,000) 67,345,000 53,177,000
Income tax provision (credit) Note 4 (38,668,000) 26,938,000 20,464,000
------------ ------------ ------------
NET INCOME (LOSS) $(59,863,000) $ 40,407,000 $ 32,713,000
============ ============ ============
Net income (loss) per common and
common equivalent share $(1.36) $0.99 $0.83
============ ============ ============
Shares used in computing net
income per share 44,008,000 40,735,000 39,455,000
============ ============ ============
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries
Consolidated balance sheets
December 31, 1995 1994
ASSETS
Cash and cash equivalents Note 1 $ 59,743,000 $ 29,683,000
Accounts receivable 154,628,000 122,984,000
Prepaid expenses and other assets Note 1 63,893,000 34,760,000
Due on sale of securities 97,446,000
Investment securities Note 1 834,286,000 1,041,474,000
Other investments Note 1 55,748,000 64,777,000
Deferred income taxes Note 4 39,527,000
Property and equipment-net Note 1 148,343,000 114,966,000
Internally generated computer software-net 73,863,000 67,820,000
Identifiable intangible assets relating
to acquisitions-net Note 1 57,270,000 36,487,000
Goodwill-net 300,552,000 148,394,000
-------------- --------------
TOTAL $1,885,299,000 $1,661,345,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 43,948,000 $ 22,060,000
Accrued expenses 59,614,000 59,742,000
Accrued income taxes 6,116,000 1,952,000
Deferred revenues 40,754,000 10,836,000
Trust account deposits 917,189,000 1,035,217,000
Long-term debt Note 3 381,361,000 143,864,000
Other obligations Note 3 2,055,000 6,152,000
Deferred income taxes Note 4 22,800,000
-------------- --------------
TOTAL LIABILITIES 1,451,037,000 1,302,623,000
COMMITMENTS AND CONTINGENCIES Note 6
SHAREHOLDERS' EQUITY:
Common stock outstanding, 44,887,000 and
40,038,000 shares, respectively 449,000 400,000
Additional paid-in capital 315,800,000 184,748,000
Unrealized gain on investments 15,268,000 11,054,000
Accumulated earnings 102,745,000 162,520,000
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 434,262,000 358,722,000
-------------- --------------
TOTAL $1,885,299,000 $1,661,345,000
============== ==============
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries
Consolidated statements of changes in shareholders' equity
Year ended December 31, 1995 1994 1993
SHARES ISSUED-75,000,000 AUTHORIZED:
Balance at beginning of year 40,037,854 39,660,740 22,621,946
Shares issued in pooling of Lincoln Holdings, Inc. 880,970
Sale of common stock 1,403,911
Shares issued under stock plans-net 274,615 238,838 201,706
Shares issued for acquired companies 4,574,659 138,276 2,354,540
Stock split -- 3-for-2 12,197,667
------------ ------------ ------------
Balance at end of year 44,887,128 40,037,854 39,660,740
============ ============ ============
COMMON STOCK-PAR VALUE $.01 PER SHARE:
Balance at beginning of year $ 400,000 $ 397,000 $ 226,000
Shares issued in pooling of Lincoln Holdings, Inc. 9,000
Sale of common stock 14,000
Shares issued under stock plans-net 3,000 2,000 2,000
Shares issued for acquired companies 46,000 1,000 24,000
Stock split -- 3-for-2 122,000
------------ ------------ ------------
Balance at end of year 449,000 400,000 397,000
============ ============ ============
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year 184,748,000 181,223,000 105,842,000
Acquired in pooling of Lincoln Holdings, Inc. 174,000
Sale of common stock 23,712,000
Shares issued under stock plans-net 670,000 2,660,000 324,000
Income tax reduction arising from the
exercise of employee stock options 2,400,000 800,000 1,300,000
Shares issued for acquired companies 127,982,000 65,000 49,993,000
Stock split -- 3-for-2 (122,000)
------------ ------------ ------------
Balance at end of year 315,800,000 184,748,000 181,223,000
============ ============ ============
UNREALIZED GAIN ON INVESTMENTS 15,268,000 11,054,000 9,230,000
============ ============ ============
ACCUMULATED EARNINGS:
Balance at beginning of year 162,520,000 122,023,000 86,405,000
Acquired in pooling of Lincoln Holdings, Inc. 2,974,000
Net income (loss) (59,863,000) 40,407,000 32,713,000
Foreign currency translation adjustment 88,000 90,000 (69,000)
------------ ------------ ------------
Balance at end of year 102,745,000 162,520,000 122,023,000
============ ============ ============
TOTAL SHAREHOLDERS' EQUITY $434,262,000 $358,722,000 $312,873,000
============ ============ ============
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries
Consolidated statements of cash flows
Year Ended December 31, 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (59,863,000) $ 40,407,000 $ 32,713,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income taxes (58,952,000) 12,375,000 11,883,000
Depreciation and amortization of
property and equipment 38,480,000 31,401,000 22,449,000
Amortization of intangible assets 25,880,000 10,846,000 9,098,000
Charge for incomplete software technology 172,970,000
Capitalization of internally generated
computer software - net (6,382,000) (9,599,000) (7,185,000)
------------- ------------- -------------
112,133,000 85,430,000 68,958,000
Cash provided (used) by changes in assets
and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (10,014,000) (12,194,000) (13,672,000)
Prepaid expenses and other assets (23,709,000) (3,935,000) (10,482,000)
Accounts payable and accrued expenses (4,843,000) (3,954,000) (6,411,000)
Deferred revenue 9,283,000 (123,000) (54,000)
Accrued income taxes 5,756,000 2,059,000 285,000
------------- ------------- -------------
Net cash provided by operating activities 88,606,000 67,283,000 38,624,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (45,039,000) (53,193,000) (29,613,000)
Investments and other assets 20,136,000 (26,545,000) (2,002,000)
Payment for acquisition of businesses,
net of cash acquired (258,237,000) (20,545,000) (113,268,000)
Investment securities 207,603,000 (176,597,000) (90,216,000)
Due on sale of securities (97,446,000)
------------- ------------- -------------
Net cash used by investing activities (172,983,000) (276,880,000) (235,099,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings and other long-term obligations 252,977,000 39,165,000 63,000,000
Repayment of borrowings and other long-
term obligations (21,150,000) (12,720,000) (3,441,000)
Issuance of common stock 638,000 1,918,000 24,036,000
Trust account deposits (118,028,000) 174,567,000 82,803,000
------------- ------------- -------------
Net cash provided by financing activities 114,437,000 202,930,000 166,398,000
------------- ------------- -------------
Change in cash and cash equivalents 30,060,000 (6,667,000) (30,077,000)
Beginning balance 29,683,000 36,350,000 66,427,000
------------- ------------- -------------
Ending balance $ 59,743,000 $ 29,683,000 $ 36,350,000
============= ============= =============
See notes to consolidated financial statements.
FIserv, Inc. and Subsidiaries Notes to consolidated financial statements
for the years ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash and investments with original maturities
of 90 days or less.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets at December 31, 1995 and 1994 include
$17,817,000 and $7,723,000, respectively, relating to long-term contracts, the
profit from which is being recognized ratably over the periods to be benefited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Trust Account Deposits and Investment Securities
The Company's trust administration subsidiaries accept money market deposits
from trust customers and invest the funds in securities. Such amounts due trust
depositors represent the primary source of funds for the Company's investment
securities and amounted to $917,189,000 and $1,035,217,000 in 1995 and 1994,
respectively. The related investment securities comprised the following at
December 31, 1995 and 1994:
Principal Carrying
1995 Amount Value Market Value
- -------------------------------- ------------- ------------- -------------
U. S. Government and government
agency obligations $553,384,000 $558,893,000 $559,000,000
Corporate bonds 119,100,000 118,891,000 118,716,000
Repurchase agreements 96,671,000 96,671,000 96,671,000
Other fixed income obligations 59,877,000 59,831,000 59,831,000
------------- ------------- -------------
Total $829,032,000 $834,286,000 $834,218,000
============= ============= =============
1994
- --------------------------------
U. S. Government and government
agency obligations $ 693,711,000 $ 696,665,000 $ 663,504,000
Corporate bonds 51,840,000 51,836,000 51,373,000
Repurchase agreements 226,581,000 226,581,000 226,581,000
Other fixed income obligations 68,050,000 66,392,000 65,079,000
------------- ------------- -------------
Total $1,040,182,000 $1,041,474,000 $1,006,537,000
============= ============= =============
Substantially all of the investments have contractual maturities of one year or
less except for government agency obligations.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the assets, ranging from 3 to 40 years:
December 31, 1995 1994
- ------------------------------------ ------------- -------------
Data processing equipment $149,143,000 $121,844,000
Purchased software 39,810,000 31,522,000
Buildings and leasehold improvements 51,195,000 35,407,000
Furniture and equipment 38,940,000 31,409,000
------------ -------------
279,088,000 220,182,000
Less accumulated depreciation and
amortization 130,745,000 105,216,000
------------ -------------
Total $148,343,000 $114,966,000
============= =============
Internally Generated Computer Software
Certain costs incurred to develop new software and enhance existing software are
capitalized and amortized over the expected useful life of the product,
generally five years. At December 31, 1995 and 1994, the unamortized portion of
internally generated computer software costs amounted to $73,863,000 and
$67,820,000, respectively; amortization of such costs charged to expense
amounted to $19,998,000, $16,655,000, and $13,995,000 in 1995, 1994 and 1993,
respectively. Routine maintenance of software products, design costs and
development costs incurred prior to establishment of a product's technological
feasibility are expensed as incurred.
Intangible Assets
Intangible assets relate to acquisitions and consist of the following at
December 31:
1995 1994
------------- ------------
Computer software acquired $ 30,949,000 $ 5,565,000
Non-competition agreements 10,744,000 19,370,000
Contract rights and other 48,012,000 33,818,000
------------- ------------
89,705,000 58,753,000
Less accumulated amortization 32,435,000 22,266,000
------------- ------------
$ 57,270,000 $ 36,487,000
============= ============
Goodwill $318,410,000 $158,679,000
Less accumulated amortization 17,858,000 10,285,000
------------- ------------
$300,552,000 $148,394,000
============= ============
Except as noted below, the cost allocated to computer software acquired in
corporate acquisitions is being amortized on a straight-line basis over its
expected useful life (generally five years or less). In connection with certain
acquisitions, the Company has entered into non-competition agreements with the
sellers. The values assigned are being amortized on the straight-line method
over the periods covered by the agreements (generally five years or less).
Costs allocated to various customer data processing contracts at the dates of
acquisition are being amortized on a straight-line basis over the remaining
terms of the contracts (generally six years or less). The excess of the purchase
price over the estimated fair value of tangible and identifiable intangible
assets acquired has been recorded as goodwill and is being amortized over forty
years. The Company periodically reviews goodwill to assess recoverability, and
impairments would be recognized in operating results if a permanent diminution
in value were to occur.
In connection with the acquisition of Information Technology, Inc. referred to
in Note 2 below, the allocation of the purchase price to the various classes of
assets was determined on the basis of an opinion expressed by a nationally
recognized independent appraisal firm. Values determined for incomplete
software have been expensed and values for completed software are being
amortized utilizing accelerated methods.
Income Taxes
The consolidated financial statements are prepared on the accrual method of
accounting. Deferred income taxes are provided for temporary differences
between the Company's income for accounting and tax purposes.
Revenue Recognition
Revenues result primarily from the sale of data processing services to financial
institutions, software sales, and administration of self-directed retirement
plans. Such revenues are recognized as the related services are provided.
Revenues include investment income of $35,695,000, $29,695,000, and $18,911,000,
net of direct credits to depositors accounts of $27,561,000, $23,217,000, and
$18,015,000 in 1995, 1994 and 1993, respectively. Deferred revenues consist
primarily of advance billings for services and are recognized as revenue when
the services are provided.
Income per Share
Income per common and common equivalent share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the periods, after giving effect to stock splits.
Supplemental Cash Flow Information
1995 1994 1993
----------- ---------- ----------
Interest paid $21,184,000 $ 8,871,000 $ 5,945,000
Income taxes paid 11,488,000 11,417,000 8,309,000
Liabilities assumed in acquisitions
of businesses 49,279,000 3,416,000 47,000,000
2. ACQUISITIONS AND CAPITAL TRANSACTIONS
Acquisitions
During 1995, 1994 and 1993 the Company completed the following acquisitions:
Date
Company Acquired Type of Business Consideration
- -------------------------------------- -------- ------------------------------ ------------------
1995
BankLink, Inc. Feb. 10 Cash management Cash for stock
Information Technology, Inc. May 17 Financial processing systems Cash and stock
for stock
Lincoln Holdings, Inc. Aug. 1 Retirement plan administrators Stock for stock
SRS, Inc. Sep. 29 Data processing Cash for stock
Document Management Services Sep. 30 Item processing Cash for assets
Division of ALLTEL Financial Information Services, Inc.
Financial Information Trust Nov. 1 Data processing Cash for stock
Outsource Technology L. C. Nov. 1 Data processing Cash for stock
1994:
National Embossing Company, Inc. Apr. 19 Automated card services Cash for stock
Boatmen's Information Systems May 2 Data processing Cash for assets
data processing business
Federal Home Loan Bank of Atlanta Aug. 19 Item processing Cash for assets
item processing contracts
Cincinnati Bell Information Systems Nov. 30 Image and document Cash for assets
banking business management services
RECOM Associates, Inc. Dec. 30 Network integration services Stock for stock
1993:
Tomahawk Holding, Inc. and Feb. 10 Data processing for banks, Cash and stock
its wholly-owned subsidiary thrifts and credit unions for stock
Basis Information
Technologies, Inc.
IPC Service Corporation Mar. 2 Item processing Cash for assets
EDS item processing May 17 Item processing Cash for assets
contracts
Datatronix Financial Services Jun. 25 Item processing Stock for stock
Data Line Service Company Jul. 13 Data processing for thrifts Cash for stock
Financial Processors, Inc. and Nov. 8 Data processing for banks Cash for stock
Financial Data Systems Item processing Cash for assets
Financial Institution Outsourcing and Nov. 30 Data processing for banks Cash for assets
Data-Link Systems, Inc. Mortgage banking services Cash for stock
Certain of the acquisition agreements provide for additional cash payments
contingent upon the attainment of specified revenue goals. Generally, the
acquisitions were accounted for as purchases and, accordingly, the operations
of the acquired companies are included in the consolidated financial statements
since their respective dates of acquisition as set forth above. Certain of the
acquisitions were accounted for as poolings of interests. However, except for
the acquisition of Lincoln Holdings, Inc. (LHI), prior year financial statements
were not restated due to immateriality. Results of operations of LHI have been
included with those of the Company for all periods presented. Combined and
separate results of the Company and LHI during the periods preceding the quarter
ended June 30, 1995 and pro forma combined results, including preacquisition
results of Information Technology, Inc. (ITI) for the years ended December 31,
1995 and 1994 (in thousands of dollars) were as follows:
Pro forma
Company LHI Combined ITI combined
------------------ ---------- ----------- ----------
(unaudited)
Quarter ended March 31, 1995 (unaudited)
Revenues $152,605 $4,574 $157,179
Net income 10,449 792 11,241
Year ended December 31, 1995
Revenues 685,582 17,798 703,380 $25,435 $728,815
Net income (63,018) 3,155 (59,863) 2,811 (57,052)
Year ended December 31, 1994
Revenues 563,590 16,249 579,839 60,868 640,707
Net income 37,664 2,743 40,407 5,885 46,292
Year ended December 31, 1993
Revenues 454,692 13,171 467,863
Net income 30,693 2,020 32,713
The acquisition of ITI was consummated for a consideration of approximately $377
million comprising approximately 4,574,000 shares of common stock of the Company
and $249 million cash, including acquisition costs. Approximately 880,000
shares of common stock of the Company were issued in the acquisition of LHI.
Net income of the Company has been determined after a pretax charge of $182.9
million relating to the writeoff of incomplete software technology and
accelerated amortization of completed software relating to the acquisition of
ITI. Accordingly, net income was reduced by $109.6 million, or $2.49 a share
relating to such charges.
Stock Purchase and Stock Option Plans
The Company has a Restricted Stock Purchase Plan, a qualified Incentive Stock
Option Plan and a Non- Qualified Stock Option Plan, each of which provide for
grants of common stock to employees for a price not less than 100% of the fair
value of the shares at the date of grant. There has been no recent activity in
the Restricted Stock Purchase Plan. In general, 20% of the option shares
awarded under the Incentive and Non-Qualified Stock Option Plans may be
purchased annually and expire, generally, five to ten years from the date of the
award. Plan activity during 1993, 1994 and 1995, adjusted for a 3-for-2 split
effective in May 1993, is summarized as follows:
Shares
-----------------------
Non- Price
Incentive Qualified Range
------------ ----------- -------------
Outstanding, December 31, 1992 1,880,116 $5.56-16.00
Granted 589,850 18.50-20.17
Assumed from Datatronix 76,895 66,415 1.63-7.10
Forfeited (32,550)
Exercised (23,590) (277,027) 1.63-15.56
------------ -----------
Outstanding, December 31, 1993 53,305 2,226,804 1.63-20.17
Granted 559,497 20.00-22.50
Forfeited (3,380) (102,945)
Exercised (19,505) (211,529) 1.63-18.50
------------ -----------
Outstanding, December 31, 1994 30,420 2,471,827 1.63-22.50
Granted 440,434 21.50-27.50
Forfeited (115,493)
Exercised (10,140) (413,588) 1.63-21.81
------------ -----------
OUTSTANDING, DECEMBER 31, 1995 20,280 2,383,180 5.56-27.50
============ ===========
SHARES EXERCISABLE,
DECEMBER 31, 1995 7,774 1,300,455
============ ===========
Options outstanding include 158,819 and 63,686 shares granted in 1994 and 1995
at $20.00 and $22.00 a share, respectively, under a stock purchase plan
requiring exercise within 30 days after a two-year period beginning on the date
of grant.
3. LONG-TERM DEBT AND OTHER OBLIGATIONS
The Company has available a $300,000,000 unsecured line of credit and commercial
paper facility with a group of banks maturing in 2000 of which $247,712,000 was
in use at December 31, 1995 at an average rate of 6.25%. The loan agreements
covering the Company's long-term borrowings contain certain restrictive
covenants including, among other things, the maintenance of minimum net worth
and various operating ratios with which the Company was in compliance at
December 31, 1995. A facility fee ranging from .175% to .325% per annum is
required on the entire bank line regardless of usage. The facility is reduced to
$255,000,000, $210,000,000 and $150,000,000, respectively, on May 17, 1997, 1998
and 1999 and expires on May 17, 2000.
Long-term debt and other obligations outstanding at the respective year-ends
comprised the following:
December 31, 1995 1994
- ----------------------------------------- ------------ ------------
9.45% senior notes payable, due 1996-2000 $ 21,429,000 $ 25,714,000
9.75% senior notes payable, due 1996-2001 15,000,000 17,500,000
8.00% senior notes payable, due 1999-2005 90,000,000
Bank notes and commercial paper 254,932,000 100,650,000
Other obligations 2,055,000 6,152,000
------------ ------------
$383,416,000 $150,016,000
============ ============
Annual principal payments required under the terms of the long-term agreements
were as follows at December 31, 1995:
Year
- ------------------------------------------------
1996 $ 9,781,000
1997 10,712,000
1998 45,780,000
1999 80,371,000
2000 169,877,000
Thereafter 66,895,000
------------
$383,416,000
============
Interest expense with respect to long-term debt and other obligations amounted
to $22,006,000, $9,228,000 and $6,374,000 in 1995, 1994 and 1993, respectively.
4. INCOME TAXES
A reconciliation of recorded income tax expense with income tax computed at the
statutory federal tax rates follows:
1995 1994 1993
------------- ----------- ------------
Statutory federal tax rate 35% 35% 35%
Tax computed at statutory rate $(34,486,000) $23,571,000 $18,612,000
State income taxes net of
federal effect (5,113,000) 2,792,000 2,647,000
Tax exempt income (688,000) (470,000) (326,000)
Other 1,619,000 1,045,000 (469,000)
------------- ----------- -----------
Recorded income tax expense $(38,668,000) $26,938,000 $20,464,000
============= =========== ============
The provision for income taxes consisted of the following:
1995 1994 1993
------------- ----------- -----------
Currently Payable $ 17,884,000 $13,763,000 $ 7,280,000
Tax reduction credited to capital
in excess of par value 2,400,000 800,000 1,300,000
Deferred (58,952,000) 12,375,000 11,884,000
------------- ----------- -----------
Total $(38,668,000) $26,938,000 $20,464,000
============= =========== ===========
The approximate tax effects of temporary differences at December 31, 1995 and
1994 were as follows:
1995 1994
----------- ------------
Allowance for doubtful accounts $ 2,319,000 $ 1,571,000
Accrued expenses not currently deductible 7,769,000 11,392,000
Deferred revenue 9,122,000 857,000
Other 1,728,000 1,074,000
Net operating loss and
tax credit carryforwards 6,739,000 5,901,000
Deferred costs (9,143,000) (4,911,000)
Internally generated capitalized software (30,283,000) (27,120,000)
Excess of tax over book depreciation
and amortization (4,419,000) (4,069,000)
Purchased incomplete software technology 66,305,000
Unrealized gain on investments (10,610,000) (7,495,000)
------------------------
Total deferred income taxes $ 39,527,000 $(22,800,000)
========== =============
The net operating loss and tax credit carryforwards have expiration dates
ranging from 1996 through 2010.
5. EMPLOYEE BENEFIT PROGRAMS
The Company and its subsidiaries have contributory savings plans covering
substantially all employees, under which eligible participants may elect to
contribute a specified percentage of their salaries, subject to certain
limitations. The Company makes matching contributions, subject to certain
limitations, and also makes discretionary contributions based upon the
attainment of certain profit goals. Company contributions vest at the rate of
20% for each year of service. Contributions charged to operations under these
plans approximated $8,144,000, $8,900,000 and $6,346,000 in 1995, 1994 and 1993,
respectively.
6. LEASES, OTHER COMMITMENTS AND CONTINGENCIES
Leases
Future minimum rental payments, as of December 31, 1995, on various operating
leases for office facilities and equipment were due as follows:
1996 $ 32,937,000
1997 25,833,000
1998 19,469,000
1999 11,879,000
2000 6,495,000
Thereafter 10,493,000
------------
Total minimum payments $107,106,000
============
Rent expense applicable to all operating leases was approximately $48,038,000,
$43,065,000 and $45,658,000 in 1995, 1994 and 1993, respectively.
Other Commitments and Contingencies
The Company's trust administration subsidiaries had fiduciary responsibility for
the administration of approximately $17 billion in trust funds as of December
31, 1995. With the exception of the trust account investments discussed in Note
1, such amounts are not included in the accompanying balance sheets.
In the normal course of business, the Company and its subsidiaries are named as
defendants in various lawsuits in which claims are asserted against the Company.
In the opinion of management, the liabilities, if any, which may ultimately
result from such lawsuits are not expected to have a material adverse effect on
the financial statements of the Company.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentage which certain items in the Company's consolidated statements of
income bear to revenues and the percentage change in those items from period to
period. The table is based upon the accompanying supplemental schedule which
excludes certain charges to 1995 operations associated with the acquisition of
Information Technology, Inc.
Percentage of Revenues
Year Ended December 31, Increase (Decrease)
1995 1994 1993 1995 vs. 1994 1994 vs. 1993
------- ------- -------- ------------- ---------
Revenues 100.0% 100.0% 100.0% 21.3% 23.9%
------- ------- --------
Cost of revenues:
Salaries, commissions and payroll
related costs 47.0 48.6 47.7 17.5 26.1
Data processing expenses, rentals
and telecommunication costs 13.6 14.0 15.5 17.8 12.1
Other operating expenses 17.8 19.0 19.3 14.1 22.0
Depreciation and amortization of
equipment and improvements 5.5 5.4 4.8 22.7 39.6
Amortization of intangible assets 2.3 1.9 1.9 47.2 19.2
Capitalization of internally generated
computer software - net (0.9) (1.7) (1.5) (33.5) 33.6
------- ------- --------
Total cost of revenues 85.3 87.2 87.7 18.7 23.2
------- ------- --------
Operating income 14.7% 12.8% 12.3% 38.9 29.1
======= ======= =======
Income before income taxes 12.0% 11.6% 11.4% 25.2 26.6
======= ======= =======
Net income 7.1% 7.0% 7.0% 23.2 23.5
======= ======= =======
The following discussion is based upon the accompanying supplemental schedule
which excludes certain charges to 1995 operations associated with the
acquisition of Information Technology, Inc. aggregating $182.9 million.
Revenues increased $123,541,000 in 1995 and $111,976,000 in 1994. Approximately
55% of the 1995 growth and 80% of the 1994 growth resulted from the inclusion of
revenues from the date of purchase of acquired businesses as set forth in Note 2
to the financial statements and the balance in each year from the addition of
new clients, growth in the transaction volume experienced by existing clients
and price increases.
As a percentage of revenues, cost of revenues decreased 1.9% from 1994 to 1995
and .5% from 1993 to 1994. The make up of cost of revenues has been
significantly affected in both years by business acquisitions and by changes in
the mix of the Company's business as item processing and electronic funds
transfer operations have enjoyed an increasing percentage of total revenues.
A significant portion of the purchase price of the Company's acquisitions has
been allocated to intangible assets, such as client contracts, computer
software, non-competition agreements and goodwill, which are being amortized
over time, generally three to forty years. Amortization of these costs
increased $5,116,000 from 1994 to 1995 and $1,748,000 from 1993 to 1994. As a
percentage of revenues, these costs have remained relatively constant from 1993
to 1994 and increased in 1995.
Capitalization of internally generated computer software is stated net of
amortization and increased $2,414,000 in 1994 and decreased $3,217,000 in 1995.
As a percentage of revenues, net capitalized software remained relatively
constant in 1994 but decreased .8% from 1994 to 1995. This trend is likely to
continue.
Operating income increased $28,883,000 in 1995 and $16,753,000 in 1994. As a
percentage of revenues, operating income increased 1.9% in 1995 and .5% in 1994.
The effective income tax rate was 41% in 1995, 40% in 1994, and 39% in 1993.
The trend to higher income tax rates results from net increases in non-
deductible permanent differences and an increase in 1993 in the federal income
tax rate. The effective income tax rate for 1996 is expected to remain at 41%.
The Company's growth has been accomplished largely through the acquisition of
entities engaged in businesses which are complementary to its operations.
Management believes that a number of acquisition candidates are available which
would further enhance its competitive position and plans to pursue them
vigorously. Management is engaged in an ongoing program to reduce expenses
related to acquisitions by eliminating operating redundancies. The Company's
approach has been to move slowly in achieving this goal in order to minimize the
amount of disruption experienced by its clients and the potential loss of
clients due to this program.
The following table sets forth (in thousands, except per share data) certain
financial highlights and pro forma information for 1995, 1994 and 1993.
Year Ended December 31, 1995 1994 1993
- ----------------------- --------- --------- --------
Revenues $703,380 $579,839 $467,863
Net income (loss) (59,863) 40,407 32,713
--------- -------- --------
Net income (loss) per share $(1.36) $0.99 $0.83
--------- -------- --------
Net income as originally reported and
before certain charges related to
acquisition of Information
Technology, Inc. 49,771 37,664 30,693
--------- -------- --------
Net income per share as originally reported
and before certain charges related to
acquisition of Information
Technology, Inc. $1.13 $0.95 $0.80
--------- -------- --------
The charges related to acquisition of Information Technology, Inc. (ITI) are a
pre-tax special, one-time, non-cash charge of $173 million to expense the
purchased ITI Premier II research and development and a pre-tax charge of $9.9
million for the accelerated amortization of the completed ITI Premier I
software. The combined after-tax charge was $109.6 million ($2.49 per share).
Liquidity and Capital Resources
The following table summarizes (in thousands of dollars) the Company's primary
sources of funds:
Year Ended December 31, 1995 1994 1993
--------- -------- --------
Cash provided by operating activities $ 88,606 $ 67,283 $ 38,624
Issuance of common stock-net 638 1,918 24,036
Decrease (increase) in other investments 12,265 (28,575) (9,415)
Increase in net borrowings 231,827 26,445 59,559
--------- -------- --------
$333,336 $ 67,071 $112,804
========= ======== ========
The Company has applied a significant portion of its cash flow from operations
and proceeds of its common stock offerings and additional borrowings to
acquisitions.
The 1994 increase in capital expenditures was abnormally high because of the
need to provide a new facility and equipment for Financial Institution
Outsourcing, acquired in November 1993.
The Company believes that its cash flow from operations together with other
available sources of funds will be adequate to meet its funding requirements.
In the event that the Company makes significant future acquisitions, however, it
may raise funds through additional borrowings or issuance of securities.
Consolidated Statements of Income Supplemental Schedule
(unaudited)
Year ended December 31, 1995 1994 1993
- ----------------------- ------------ ------------ ------------
Revenues $703,380,000 $579,839,000 $467,863,000
------------ ------------ ------------
Cost of revenues:
Salaries, commissions and payroll
related costs 330,845,000 281,651,000 223,271,000
Data processing expenses, rentals and
telecommunication costs 95,798,000 81,320,000 72,524,000
Other expenses 125,498,000 109,975,000 90,162,000
Depreciation and amortization of
property and equipment 38,480,000 31,350,000 22,450,000
Amortization of intangible assets 15,962,000 10,846,000 9,098,000
Capitalization of internally generated
computer software-net (6,382,000) (9,599,000) (7,185,000)
------------ ------------ ------------
Total 600,201,000 505,543,000 410,320,000
------------ ------------ ------------
Operating income 103,179,000 74,296,000 57,543,000
Interest expense - net 18,822,000 6,951,000 4,366,000
------------ ------------ ------------
Income before income taxes 84,357,000 67,345,000 53,177,000
Income tax provision 34,586,000 26,938,000 20,464,000
------------ ------------ ------------
Net income $ 49,771,000 $ 40,407,000 $ 32,713,000
Net income per common and
common equivalent share $1.13 $0.99 $0.83
============ ============ ============
Net income per common and common
equivalent share as originally $1.13 $0.95 $0.80
reported ============ ============ ============
Shares used in computing net
income per share 44,008,000 40,735,000 39,455,000
============ ============ ============
Selected Financial Data
The following data (in thousands, except per share data), which has been
materially affected by acquisitions, should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this Annual
Report.
Year Ended December 31, 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------
Revenues $ 703,380 $ 579,839 $ 467,863 $ 341,448 $288,450
Income (loss) before income taxes (98,531) 67,345 53,177 39,291 29,703
Income taxes (credit) (38,668) 26,938 20,464 14,925 10,686
Net income (loss) (59,863) 40,407 32,713 24,366 19,017
Net income (loss) per share $(1.36) $0.99 $0.83 $0.69 $0.57
---------- ---------- ---------- ---------- --------
Total Assets $1,885,299 $1,661,345 $1,395,403 $1,097,339 $863,499
Long-term debt and other long-
term obligations 383,416 150,016 122,417 59,472 57,768
Shareholders' equity 434,262 358,722 312,873 195,630 168,683
---------- ---------- ---------- ---------- --------
Note: The above information has been restated to recognize (1) 3-for-2 stock
splits effective in May 1993, June 1992 and July 1991 and (2) the acquisition in
1995 of Lincoln Holdings, Inc. accounted for as a pooling of interests.
QUARTERLY FINANCIAL INFORMATION
for the years ended December 31, 1995 and 1994
(Unaudited)
(Amounts in thousands, except per share data)
Quarters
1995 First Second Third Fourth Total
-------- -------- -------- -------- --------
Revenues $157,179 $173,470 $176,922 $195,809 $703,380
-------- -------- -------- -------- --------
Cost of revenues 136,288 148,725 148,286 349,790 783,089
-------- -------- -------- -------- --------
Operating income (loss) 20,891 24,745 28,636 (153,981) (79,709)
-------- -------- -------- -------- --------
Income (loss) before
income taxes 19,054 20,308 22,223 (160,116) (98,531)
-------- -------- -------- -------- --------
Income taxes 7,813 8,326 9,111 (63,918) (38,668)
-------- -------- -------- -------- --------
Net income (loss) $ 11,241 $ 11,982 $ 13,112 $(96,198) $(59,863)
-------- -------- -------- -------- --------
Net income (loss) per share $0.27 $0.28 $0.29 $(2.10) $(1.36)
-------- -------- -------- -------- --------
1994
Revenues $139,852 $139,801 $143,661 $156,525 $579,839
-------- -------- -------- -------- --------
Cost of revenues 122,651 121,379 124,694 136,819 505,543
-------- -------- -------- -------- --------
Operating income 17,201 18,422 18,967 19,706 74,296
-------- -------- -------- -------- --------
Income before income taxes 15,627 16,790 17,154 17,774 67,345
-------- -------- -------- -------- --------
Income taxes 6,251 6,716 6,861 7,110 26,938
-------- -------- -------- -------- --------
Net income $ 9,376 $ 10,074 $ 10,293 $ 10,664 $ 40,407
-------- -------- -------- -------- --------
Net income per share $0.23 $0.25 $0.25 $0.26 $0.99
-------- -------- -------- -------- --------
The above information has been restated to recognize the acquisition in 1995 of
Lincoln Holdings, Inc. accounted for on a pooling of interests basis.
Market Price Information
The following information relates to the closing price of the Company's $.01 par
value common stock, which is traded on the over-the-counter market and is quoted
on the NASDAQ National Market System under the symbol FISV.
1995 1994
Quarter Ended High Low High Low
March 31 27.75 21 23.5 18.5
June 30 28.375 25.75 22.25 20
September 30 31 25.5 22.75 18.75
December 31 30.125 25.5 23.5 19.25
At December 31, 1995, the Company's common stock was held by approximately
20,000 shareholders of record or through nominee or street name accounts with
brokers. The closing sale price for the Company's stock on January 26, 1996 was
$26.25 per share.
The Company's present policy is to retain earnings to support future business
opportunities, rather than to pay dividends.
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of FIserv, Inc. assumes responsibility for the integrity and
objectivity of the information appearing in the 1995 Annual Report. This
information was prepared in conformity with generally accepted accounting
principles and necessarily reflects the best estimates and judgment of
management.
To provide reasonable assurance that transactions authorized by management are
recorded and reported properly and that assets are safeguarded, the Company
maintains a system of internal controls. The concept of reasonable assurance
implies that the cost of such a system is weighed against the benefits to be
derived therefrom.
Deloitte & Touche LLP, certified public accountants, audit the financial
statements of the Company in accordance with generally accepted auditing
standards. Their audit includes a review of the internal control system, and
improvements are made to the system based upon their recommendations.
The Audit Committee ensures that management and the independent auditors are
properly discharging their financial reporting responsibilities. In performing
this function, the Committee meets with management and the independent auditors
throughout the year. Additional access to the Committee is provided to
Deloitte & Touche LLP on an unrestricted basis, allowing discussion of audit
results and opinions on the adequacy of internal accounting controls and the
quality of financial reporting.
/S/ GEORGE D. DALTON
GEORGE D. DALTON
Chairman and Chief Executive Officer
INDEPENDENT AUDITORS' REPORT
Shareholders and Directors of FIserv, Inc.:
We have audited the accompanying consolidated balance sheets of FIserv, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FIserv, Inc. and subsidiaries at
December 31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
February 2,1996